Homeownership and the Racial Wealth Gap

March 06, 2013

I'm 29 and still hopeful I'll be a homeowner one day. Both my parents have owned their homes for years, and it has always been clear to me that the financial and social benefits of owning a home outweigh the benefits of paying less in rent and using the extra income for other things. Even though I know, as an African-American woman with some serious student debt living in one of the most expensive cities in the world, that the odds are stacked against me, I've started taking some steps to make homeownership a possibility in the not-too-distant future.

So you can understand my unease after reading the following in a new study from the Institute on Assets and Social Policy at Brandeis University about the growing wealth gap in the United States:

While homeownership has played a critical role in the development of wealth for communities of color in this country, the return on investment is far greater for white households, significantly contributing to the expanding racial wealth gap shown in [the figure below]. The paradox is that even as homeownership has been the main avenue to building wealth for African-Americans, it has also increased the wealth disparity between whites and blacks....

As the report, The Roots of the Widening Racial Wealth Gap: Explaining the Black-White Economic Divide (8 pages, PDF), notes, homes are the largest investment most American families make, and they are by far the biggest item in a family's "wealth portfolio." For African Americans, home equity represents 53 percent of household wealth, while for whites, who typically have a more diversified wealth portfolio, it accounts for just 39 percent. "Yet, for many years," the report's authors write, "redlining, discriminatory mortgage-lending practices, lack of access to credit, and lower incomes have blocked the homeownership path for African Americans while creating and reinforcing communities segregated by race. African Americans, therefore, are more recent homeowners and more likely to have high-risk mortgages, [making them] more vulnerable to foreclosure and volatile housing prices."

Home ownership is just one of five factors the report's authors identified as contributing to the racial wealth gap in the U.S. -- which, as the figure below shows, has tripled over the past twenty-five years, from $85,000 in 1984 to $236,500 in 2009. Other factors include family income, employment stability, education level, and family financial support and inheritance.

To help all Americans build wealth, the report's authors recommend that the public sector implement a number of broad policy and institutional changes, including:

taking steps to ensure mortgage and lending policies and fair-housing policies are enforced and strengthened so that the legacy of residential segregation in the United States ceases to be a source of greater wealth opportunities for white homeowners than for African Americans;

adopting proven policies at the national, state, and local levels to help all Americans access stable employment opportunities and retirement benefits;

investing in affordable high-quality childcare and early childhood development programs to ensure that every child is healthy and prepared for school;

supporting policies that help more students from low- and moderate-income families and families of color attend college and graduate;

supporting policies that do not leave students drowning in debt or left with no option but to drop out of school because they can no longer afford the enormous price tag; and

eliminating the preferential tax treatment for large estates.

After reading the report, I could't help but wonder what the philanthropic sector, which has grown in size as inequality in America has widened, is doing to address the growing racial wealth gap in the country? And what more can or should it be doing to expand wealth opportunities for all Americans?